A special needs trust (sometimes called a “supplemental needs trust,” abbreviated “SNT”) is a trust set up to provide for a disabled individual. This may be a loved one who has special physical, mental, or emotional needs.
Often, these individuals receive public benefits such as Medicaid or Supplemental Security Income (“SSI”).
There are 2 types of special needs trusts which we will discuss further below. A special needs trust attorney can help clarify which is best for you.
But before we get into that, there are some basic facts you need to know about special needs trusts.
Special Needs Trust Basics
First, it is important to understand that special needs trusts must be carefully drafted.
Because the purpose of the trust is to care for the person with special needs, the trust terms must be drafted to expressly state the trust maker’s intent to help the beneficiary, yet not interfere with his or her eligibility for SSI or other needs-based government funds.
SSI is a federal program that provides benefits to adults and children who are blind or disabled, or to adults 65 and older with limited or no income. To qualify for SSI benefits, the individual must have very limited financial resources and little to no income.
The SSI program provides supplemental income for people who have worked very little, or never worked at all. To qualify for SSI, a person must meet the strict financial limits set by the Social Security Administration (SSA). These limits include wages as well as items considered financial “resources.”
If a person has resources above the SSI limits (i.e., $2,000 for an individual or $3,000 for a married couple), then he or she will not qualify to receive benefits.
According to the SSA, trusts count as “resources.”
Importantly, however, special needs trusts do not count as “resources” for SSI purposes. But the amount of money paid to a beneficiary through a special needs trust can reduce the amount of SSI he receives and may also affect Medicaid eligibility.
All of this is to emphasize how important it is that a special needs trust be carefully drafted and executed. It’s essential to work with a special needs trust lawyer near you to avoid legal concerns.
The special needs trust must be drafted so that it is clear from the terms of the trust agreement that the trustee is to use the trust assets to supplement—not replace—public benefits. For example, if special trust assets are used to pay for basics like food and shelter for the beneficiary, the beneficiary will lose his/her Medicaid benefits. If the beneficiary of a special needs trust is given cash (or even a gift card) to purchase items on his/her own, the beneficiary may lose his/her SSI benefits or have them reduced.
Another key factor to consider is that a special needs trust places significant responsibility on the trustee.
The trustee is responsible for paying for the beneficiary’s needs (in accordance with the terms of the trust), yet the trustee also has a responsibility to ensure that any payments from the trust do not jeopardize the beneficiary’s eligibility for public benefits such as SSI or Medicaid. If the trustee fails to understand the difference between supplementing public benefits and supplanting them when making trust distributions, the beneficiary risks losing his benefits entirely or having them reduced. This is a grave responsibility because the impact to the beneficiary is so serious.
Another primary responsibility the trustee has is to account for trust income taxes. A special needs trust beneficiary must pay taxes on all trust income, even if it is not distributed. And it is the trustee’s responsibility to see that this is properly handled.
Again, any failure by the trustee to pay taxes and account for trust income taxes can have significant negative consequences for the beneficiary. And it can severely impact the trustee as well. A trustee that improperly administers a special needs trust can be held personally liable if his/her actions or inactions adversely affect the beneficiary’s public benefits.
A further point to know about special needs trusts is that the beneficiary of the trust does not, and cannot, control distribution of trust assets. The funds are used for the beneficiary’s benefit, but the beneficiary may not directly take or distribute them.
As noted above, the overarching goal of a special needs trust is to provide for a beneficiary’s needs without jeopardizing his public benefits.
2 Types of Special Needs Trusts
There are generally 2 types of special needs trusts. A special needs trust attorney can help determine which is best for your needs.
They are:
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Third-party Special Needs Trust
This is generally the trust most people think of when they think about special needs trusts.
The third-party special needs trust is an SNT set up by a third party for the beneficiary’s benefit. Quite often this third party is a parent or grandparent of the beneficiary. They create the trust for the benefit of a disabled child or grandchild.
A third-party SNT can be set up by anyone other than the beneficiary.
This type of special needs trust can be funded through a Last Will and Testament (“Will”) or it can be a standalone special needs trust.
If it is established by Will, the special needs trust will not come into existence until the death of the trustor.
Understanding your options for special needs trusts is just one reason to speak with an experienced special needs trust lawyer.
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Self-settled Special Needs Trust
The second main type of special needs trust is a self-settled special needs trust.
As the name implies, this trust is made by a disabled individual and funded with his/her own funds, for his/her benefit.
These types of trusts are often made by those receiving Medicaid. In other words, in this type of trust, the recipient of government benefits is the trust maker and the beneficiary of the SNT.
Florida law places several restrictions on a self-settled special needs trust. For example, only disabled adults under age 65 may create one. Also, the self-settled special needs trust must be irrevocable. Finally, a self-settled special needs trust must include a payback provision stating that any money remaining in the trust at the death of the disabled person will be repaid to the government to the extent necessary to reimburse the state for Medicaid benefits paid to the trust maker during their lifetime.
Whichever type of special needs trust you may be considering, these trusts can be critical for planning for loved ones with special needs or for yourself if you may be facing a disability. There is a lot more to know about special needs trusts in Florida. Consult with an experienced trust lawyer to learn more.
Special Needs Trust Lawyers in Florida
Helping individuals plan their estate and navigate the probate process is what the special needs trust attorneys at the SJF Law Group do. We provide individualized estate plans, expertly guide individuals through the complex probate process, and capably handle all aspects of the creation, administration, and settlement of trusts. Call 954-580-3690 to book a complimentary consultation.
